Edwards Lifesciences Q2 2023 Earnings Report

Edwards Lifesciences EPS Results

• Actual EPS: $0.66
• Consensus EPS: $0.65
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.63

Edwards Lifesciences Revenue Results

• Actual Revenue: $1.53 billion
• Expected Revenue: $1.51 billion
• Beat/Miss: Beat by +$24.97 million
• YoY Revenue Growth: +11.40%

Edwards Lifesciences Announcement Details

• Quarter: Q2 2023
• Date: 7/26/2023
• Time: After Market Closes
• Conference Call Date: Wednesday, July 26, 2023
• Conference Call Time: 5:00PM ET

Edwards Lifesciences (NYSE:EW) is a medical technology company focused on products and therapies for structural heart disease and critical care monitoring. The company designs, develops and manufactures prosthetic heart valves and related delivery systems used in both surgical and minimally invasive (transcatheter) procedures. Its portfolio addresses a range of valvular conditions, with an emphasis on technologies that enable transcatheter aortic valve replacement (TAVR) as an alternative to open-heart surgery.

In addition to transcatheter heart valves—including the widely recognized SAPIEN family—Edwards offers surgical tissue valves and ancillary devices used by cardiac surgeons, interventional cardiologists and hospital teams. The company also produces hemodynamic monitoring platforms and consumables intended for perioperative and intensive care settings to support patient management during high-acuity procedures. Customers include hospitals and health systems across multiple geographies, and Edwards distributes its products globally in markets such as North America, Europe and the Asia-Pacific region.

Edwards Lifesciences has a long-standing emphasis on research, clinical evidence and product innovation, pursuing clinical trials and regulatory approvals to expand indications for existing therapies and to develop new treatments for other forms of structural heart disease. Its business model combines manufacturing, direct sales and partnerships to support training, clinical adoption and post-market surveillance. The company’s strategic focus remains on advancing less-invasive cardiac therapies and improving outcomes for patients with valvular and critical cardiovascular conditions.

Edwards Lifesciences Q2 2023 Earnings Call Transcript

Key Takeaways

• Edwards reported Q2 sales of $1.53 billion, up 12% on a constant-currency basis, driven by broad-based growth across all product groups and prompting management to raise its full-year sales and EPS guidance.
• The transcatheter aortic valve replacement (TAVR) business delivered $992 million in sales (10% CC growth), aided by improved U.S. hospital staffing and the SAPIEN 3 Ultra Resilia launch, and the company is restarting enrollment in its pivotal SAPIEN X4 trial.
• Transcatheter mitral and tricuspid therapies (TMTT) achieved $48 million in global sales (up ~70% CC), fueled by adoption of the PASCAL Precision system and new center activations, and remains on track to complete enrollment in key mitral and tricuspid pivotal trials with EU tricuspid approval expected by late 2023.
• Surgical Structural Heart sales rose 13% CC to $256 million on uptake of premium Resilia tissue valves (with a 7-year mitral durability study ongoing), while Critical Care grew 13% CC to $203 million, led by the smart recovery portfolio, Acumen IQ sensor and Hemosonics monitoring platform.
• The company now forecasts full-year 2023 sales of $5.9 billion to $6.1 billion (+10–13% CC) and adjusted EPS of $2.50–$2.60, with Q3 sales guidance of $1.44–$1.52 billion and EPS of $0.55–$0.61, reflecting confidence in sustained growth and ongoing investment in innovation.

Presentation

[Operator]

Greetings, welcome to the Edwards Lifesciences Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Mark Wilterding, Senior Vice President, Investor Relations and Treasurer. Thank you. You may begin.

[Mark Wilterding, Senior Vice President, Investor Relations and Treasurer at Edwards Lifesciences]

Thank you very much, Diego. Good afternoon, and thank you all for joining us. With me on today's call is our Chief Executive Officer, Bernard Zovighian, along with our Chief Financial Officer, Scott Ullem. Also joining us for the Q&A portion of the call are Larry Wood, our Group President of TAVR and Surgical Structural Heart, and Daveen Chopra, our Global Leader of TMTT. Katie Szyman, our Global Leader of Critical Care, is out of town today, but she'll be with us on future earnings calls. Just after the close of regular trading, Edwards Lifesciences released second quarter 2023 financial results. During today's call, management will discuss those results included in the press release and accompanying financials to get schedules, and then use the remaining time for Q&A. Please note that management will be making forward-looking statements that are based on estimates, assumptions, and projections.

[Mark Wilterding, Senior Vice President, Investor Relations and Treasurer at Edwards Lifesciences]

These statements include, but aren't limited to, financial guidance and expectations for longer-term growth opportunities, regulatory approvals, clinical trials, litigation, reimbursement, competitive matters, and foreign currency fluctuations. These statements speak only as of the date on which they are made, Edwards does not undertake any obligation to update them after today. Additionally, the statements involve risks and uncertainties that could cause actual results to differ materially. Information concerning factors that could cause these differences and important product safety information may be found in the press release, our 2022 annual report on Form 10-K, and Edwards' other SEC filings, all of which are available on the company's website at edwards.com. Finally, a quick reminder that when using terms constant currency and adjusted, management is referring to non-GAAP financial measures. Otherwise, they're referring to GAAP results.

[Mark Wilterding, Senior Vice President, Investor Relations and Treasurer at Edwards Lifesciences]

Reconciliations between GAAP and non-GAAP numbers mentioned during this call are available in today's press release. With that, I'd like to turn the call over to Bernard for his comments. Bernard?

[Bernard Zovighian, CEO at Edwards Lifesciences]

Thanks, Mark. Hello, everyone. I am pleased, you know, to share with you the work that our team did to help more patients than even before with our life-saving therapies. Today, I'm going to talk about the strong second quarter performance across product groups, our progress in advancing our patient-focused innovation strategy, and our confidence in the outlook for Edwards in the years ahead. In the second quarter, we achieved double-digit sales growth, driven by increased adoption of our innovative therapies. Total sales of $1.53 billion grew 12% on a constant currency basis, slightly higher than our expectation. We experienced broad-based growth across the Edwards portfolio. Given improving healthcare staffing and our first half performance, we continue to expect strong results in 2023. As a result, we have lifted our full year 2023 sales and EPS guidance.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Longer term, we are confident in our focus and differentiated strategy, given heart valve failure is largely underdiagnosed and undertreated. We remain committed to increasing awareness and providing innovative life-saving therapies so even more patients can benefit. I will provide an overview of the second quarter sales performance by product group. In TAVR, we continue to see strong demand for our leading SAPIEN platform, with sales of $992 million, up 10% year-over-year on a constant currency basis. Our U.S. and sales growth rate were comparable. Local selling prices were stable. In the U.S., our second quarter TAVR sales were aided by improved hospital staffing levels and the continued successful launch of SAPIEN 3 Ultra RESILIA. We estimate that total procedure growth was in line with our sales growth.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Additionally, we will be restarting enrollment this quarter in our pivotal trial ALLIANCE designed to study our next generation TAVR Technology, SAPIEN X4. Outside of the U.S., we had positive constant currency sales growth from all regions. In Europe, Edwards sales growth were driven by the broad-based adoption of our SAPIEN platform. Our sales in grew sequentially and year-over-year on a constant currency basis, although our results continued to be impacted by lower than expected market growth and competitive trialing in the first half of this year. As a result, we estimate overall OUS TAVR procedure growth in Q2 was slightly higher than Edwards' OUS TAVR growth. During the quarter, at the EuroPCR Medical Congress, data on the Benchmark study were presented on 2,400 patients treated with SAPIEN valves across 28 European centers.

[Bernard Zovighian, CEO at Edwards Lifesciences]

It was very encouraging to note that patients experienced a 33% reduction in the median hospital length of stay, while maintaining 30-day clinical outcomes. This study showed that by implementing best practices with the SAPIEN platform, centers can be more efficient without compromising patient outcomes. Turning to TMTT, we remain focused on three key value drivers to unlock this opportunity: a portfolio of differentiated therapies, positive clinical trial results to support approvals and adoption, and favorable real-world clinical outcome. TMTT's second quarter global sales of $48 million increased nearly 70% on a constant currency basis versus, you know, the prior year. Growth was driven by continued strong overall procedure volumes, adoption of our differentiated PASCAL Precision platform, and activation of more centers across the U.S. and Europe. We continue to hire, train, and grow the field team to deliver on our high-touch model as we expand.

[Bernard Zovighian, CEO at Edwards Lifesciences]

In mitral, enrollment is ongoing in the CLASP IIF pivotal trial for functional mitral patients. We are also pleased with the enrollment in the INCEPTOR pivotal trial for the SAPIEN M3 mitral valve replacement, and remain on track to complete enrollment around the end of this year. In tricuspid, the CLASP II TR pivotal trial with PASCAL continues and running well. With the completion of TRISCEND II enrollment, continued access for EVOQUE allows U.S. centers to continue to offer this therapy for tricuspid patients. We remain on track for European approval by the end of 2023, and U.S. approval around the end of 2024. In surgical, second quarter sales of $256 million increased 13% on a constant currency basis, driven by the adoption of our premium RESILIA products across all regions.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Physicians and patients value the feature and benefit of this advanced tissue technology for both aortic and mitral surgical valve procedures. Patient enrollment continued in the second quarter for our MOMENTIS clinical study, designed to demonstrate the durability of RESILIA tissue in the mitral position. We expect that confidence from the recently presented seven-year data of our COMMENCE clinical trial, will continue to support adoption of our RESILIA family of products. In critical care, second quarter sales of $200 million-$35 million dollar increase 13% on a constant currency basis, driven by contribution from all product lines. Growth was led by our Smart Recovery portfolio and healthy adoption of our Acumen IQ sensor. Sales momentum for our HemoSphere monitoring platform was also positive in the second quarter, with a healthy pipeline of future opportunities.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Before I turn it over to Scott, I also want to mention our expectation for the upcoming TCT conference in October. During the conference, we expect several important presentations regarding our transcatheter technologies. In TAVR, we are expecting a presentation of five-year clinical data for the TAVR free low-risk pivotal trial. In TMTT, we anticipate a presentation of a one-year full cohort of the CLASP IID pivotal trial results. Additionally, we anticipate a presentation of a planned interim analysis of a TRISCEND II randomized cohort. I look forward, you know, to seeing many of you at the investor event we plan to host at TCT. Our investor relation team will communicate details as we get closer to the event. Now, I will turn the call over to Scott.

[Scott Ullem, CFO at Edwards Lifesciences]

Great. Hey, thanks a lot, Bernard. We are pleased with our sales performance in the first half of the year, posting our second consecutive quarter of double-digit constant currency growth. All product groups grew double digits. Sales were balanced across regions, with the exception of Japan, which was impacted by the trialing of competitive TAVR products. We achieved total sales in the quarter of $1.53 billion, which represents 12% year-over-year constant currency growth. We achieved adjusted earnings per share of $0.66. Contribution from our better-than-expected sales performance was partially offset by higher performance-based compensation and investments in our transcatheter operations in support of our growth strategy. Our GAAP earnings per share of $0.50 was impacted by the intellectual property agreement I commented on last quarter. We previously had a long-term intellectual property agreement with Medtronic that expired last year.

[Scott Ullem, CFO at Edwards Lifesciences]

In consideration for the new agreement, we paid $300 million, approximately half of which has been expensed, and the other half will be amortized over the next 15 years. Reconciliation between our GAAP and adjusted earnings per share for these and other items is included with today's release. I'll now cover some additional details of our second quarter sales results and full year 2023 outlook by product group. A continuation of double-digit global TAVR growth reflected a more stable hospital staffing environment, as well as strong adoption of the SAPIEN family of valves. US TAVR sales growth was driven by the launch of SAPIEN 3 Ultra RESILIA, which remains on track to represent the majority of our US TAVR sales before year-end. In Europe, Edwards sales growth was driven by the continued demand of our SAPIEN platform and was broad-based by country.

[Scott Ullem, CFO at Edwards Lifesciences]

We still see some health system capacity challenges, but are encouraged that centers are adapting to continue to treat their patients. In Japan, although growth was below our expectations in Q2, we anticipate that growth rates will improve, driven by the ongoing launch of SAPIEN 3 Ultra RESILIA. For global TAVR sales, we are adjusting the low end of our outlook slightly higher to $3.85 billion-$4.0 billion. We now expect full-year TAVR growth to be 10%-13% on a constant currency basis versus previous guidance of 10%-12%. TMTT growth in the second quarter was driven by strong procedure volumes, adoption of our differentiated PASCAL Precision platform, and activation of more centers across the U.S. and Europe.

[Scott Ullem, CFO at Edwards Lifesciences]

Overall, we're pleased with our continued progress toward bringing a portfolio of TMTT therapies, combined with contemporary clinical data, in order to achieve our vision of transforming the lives of patients with mitral and tricuspid valve disease. We now expect full-year 2023 sales of $180 million-$200 million versus our previous expectation of $170 million-$200 million. In surgical structural heart, 13% constant currency sales growth in the quarter was driven by the adoption of Edwards' premium products, as well as strength in valve surgery procedures as hospital staffing levels have continued to improve.

[Scott Ullem, CFO at Edwards Lifesciences]

Based on positive year-to-date performance, we now expect that our full-year sales will be in the range of $960 million-$1.02 billion, versus previous guidance of $870 million-$970 million. This revised range implies low double-digit constant currency growth in 2023. Finally, turning to Critical Care. We continue to expect full-year 2023 sales of $870 million-$940 million. For total Edwards, based on the strong first half of the year, we now forecast full-year 2023 sales to be in the range of $5.9 billion-$6.1 billion versus prior guidance of the high end of $5.6 billion-$6.0 billion.

[Scott Ullem, CFO at Edwards Lifesciences]

We now expect full-year total company sales growth to be in the 10%-13% range on a constant currency basis versus previous guidance of 10%-12%. Lastly, we now expect our full-year adjusted earnings per share to be between $2.50 and $2.60. We're projecting third quarter sales to be between $1.44 billion-$1.52 billion. We are also projecting third quarter adjusted EPS of $0.55-$0.61. I'll now cover additional details of our P&L. For the second quarter, our adjusted gross profit margin was 77.7% as expected, compared to 80.5% in the same period last year. This reduction was driven by a less favorable impact from foreign exchange.

[Scott Ullem, CFO at Edwards Lifesciences]

We continue to expect our full-year 2023 adjusted gross profit margin to be between 76%-78%. Selling, general, and administrative expenses in the quarter were $469 million, or 30.6% of sales, compared to $409 million in the prior year. This increase was driven by performance-based compensation and investments in transcatheter field-based personnel in support of our growth strategy. We continue to expect full-year 2023 SG&A as a percent of sales to be 29%-30%, as we invest in field-based personnel and our therapy adoption initiatives. Research and development expenses in the second quarter grew 8% over the prior year to $270 million, or 17.7% of sales. This increase was primarily the result of continued investments in our transcatheter aortic valve innovations, including increased clinical trial activity.

[Scott Ullem, CFO at Edwards Lifesciences]

For the full year 2023, we continue to expect R&D to be 17%-18% of sales as we invest in developing new technologies and generating evidence to support TAVR and TMTT. During the second quarter, we recorded a $27 million reduction in the fair value of our contingent consideration liabilities, which benefited earnings per share by $0.04. This benefit was excluded from our adjusted earnings per share of $0.66. This reflects an adjustment of assumptions regarding potential milestone payments for a previous acquisition. Turning to taxes. Our reported tax rate this quarter was 9.7%, or 13.1%, excluding the impact of special items. Our rate benefited from higher R&D tax credits and a 200 basis point excess tax benefit from stock-based compensation.

[Scott Ullem, CFO at Edwards Lifesciences]

We continue to expect our full-year tax rate, excluding special items, to be 13%-17%. Foreign exchange rates decreased second quarter reported sales growth by 70 basis points, or $8 million, compared to 2022. At current rates, we continue to expect an approximately flat year-over-year impact to full year 2023 sales compared to 2022. Foreign exchange rates negatively impacted our second quarter gross profit margin by 220 basis points compared to the prior year. Relative to our April guidance, FX rates had a minimal impact on second quarter earnings per share. Adjusted free cash flow for the second quarter was $286 million, defined as cash flow from operating activities of $34 million, less capital spending of $48 million, and excluding a $300 million payment related to the Medtronic intellectual property agreement I mentioned earlier.

[Scott Ullem, CFO at Edwards Lifesciences]

We continue to expect full year 2023 adjusted free cash flow will be between $1.0 billion and $1.4 billion. Before turning the call back over to Bernard, I'll finish with an update on our balance sheet and share repurchase activities. We continue to maintain a solid and flexible balance sheet with approximately one and a half billion dollars in cash equivalents, and short-term investments as of June 30th. We continue to expect average diluted shares outstanding for 2023 to be between 610 million and 615 million. We have approximately $650 million remaining under our current share repurchase authorization. With that, I'll hand it back over to you, Bernard.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Thank you, Scott. Based on our strong third half results, we have increased confidence that 2023 will be an important year for Edwards, and we expect to deliver 10%-13% sales growth while making meaningful progress on our innovations to improve care for many more patients. Longer term, I have great confidence in our team to further extend our leadership position by bringing our differentiated technologies to patients globally. In closing, we are well positioned for success. With that, pass it back to Mark, you know, to open up Q&A.

[Mark Wilterding, Senior Vice President, Investor Relations and Treasurer at Edwards Lifesciences]

Thanks a lot, Bernard. With that, we're ready to take questions now. In order to allow for broad participation, we ask that you please limit the number of questions to 1, plus 1 follow-up. If you have additional questions, please reenter the queue and management will answer as many participants as possible during the remainder of the call. Operator, please go ahead with additional details on accessing the Q&A portion of the call.

[Operator]

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please limit yourself to one question and one follow-up. Our first question comes from Robbie Marcus with J.P. Morgan. Please state your question.

[Robbie Marcus, Managing Director at J.P. Morgan]

Great. Thanks for taking the questions, and congrats on a nice quarter. Maybe to start, global TAVR growth around 10%, a little weak in Japan. Where do you think we are in the recovery process in terms of stabilizing the system, stabilizing timelines and, you know, staffing in the system? You know, when do you think we'll get to a new normal in TAVR procedures and diagnosis and treatment?

[Bernard Zovighian, CEO at Edwards Lifesciences]

Hey, Robbie, you know, this is Bernard here. You know, thanks, you know, for the question. You know, we are pleased with our global TAVR result in Q2. 10%, you know, constant currency growth, you know, comparable, you know, U.S. or U.S., you know, basically, it has been driven by, you know, continued, you know, strong demand for our leading SAPIEN platform. You know, also, you know, what we have experienced is an improvement in the hospital staffing level in the U.S. and, you know, and globally. I'm going to let you know, Larry, you know, add some comments here.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Hey, Robbie. Yeah, it's, you know, deciding what the new normal is probably a little bit tricky, but I feel like the system has continued to get better. I think when we track staffing, we're not where we should be, and we're not where we would have projected to be in absence of the pandemic. I think, you know, patients are certainly coming in, and they're getting their visits, and I think when we look at some of the leading indicators, diagnosis are up and patients are moving through the system. We still feel constrained somewhat at the cath lab level. That's still a place that we still struggle, I think centers have made tremendous strides, but it's still an adjustment coming out of COVID, and we're not back to what I'd call pre-COVID normal levels.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

I think we still have a little ways to go. I think we see that a little bit globally. It varies a lot across Europe, and we see it a little bit in Japan, depending on, I think they're still dealing with a little bit more COVID here and there. I think the encouraging thing is we're at 10% globally, and we know we haven't fully recovered yet. I think there's still some opportunity for us to continue to do better, and we know the undertreatment remains huge, and we still think there's a lot of opportunities to continue to grow this over the long term.

[Robbie Marcus, Managing Director at J.P. Morgan]

Great. Thanks for that. Maybe just kind of a similar question? TMTT, you beat in the quarter. That seems like it was even a bit more impaired over the past few years than the whole TAVR complex. Maybe just talk about mitral and tricuspid, particularly the launch of PASCAL in the US, how you think adoption is going versus plan, how you're seeing the competitive situation play out, and just your thoughts on TMTT in general, relative to TAVR normalization? Thanks a lot.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Yeah, let me start with Robbie, and then, you know, I will ask Daveen, you know, to add, you know, some comments here. We are pleased about, you know, Q2, obviously, you know, globally. What we have seen is that the market, you know, the mitral market, has done well in Q2. You know, it's back to, you know, growing and, you know, almost, you know, a double digit, you know, something like that. The adoption of PASCAL Precision is going very well. It's going very well in U.S., it's going, you know, very well in Europe, and we are activating, you know, more centers across U.S. and Europe. This is, you know, the way to think about it.

[Bernard Zovighian, CEO at Edwards Lifesciences]

You know, we had some, you know, great, momentum from the market, from PASCAL Precision, and from us activating, you know, more centers. Daveen, you want to add anything here?

[Daveen Chopra, Global Leader of TMTT at Edwards Lifesciences]

Yeah, definitely. Thanks, Bernard. I think as Larry and Bernard talked about the market, we continue to see recovery from the staffing portion of it. I think you're right, that maybe we've got hit a little bit more on the staffing side during COVID. Coming out, we're also still seeing recovery, but I still think there's opportunity to keep getting better on that component. That being said, with such a large number of patients looking for new therapies, we continue to see relatively strong market growth. That being said, as we dive into it, we continue to open up new centers in both the US and Europe. Specifically in the US, I think we're continuing to hear great feedback from physicians about the differentiated features and benefits of the PASCAL system.

[Daveen Chopra, Global Leader of TMTT at Edwards Lifesciences]

We're ramping up the team. We're opening up new centers each week. We're going through kind of the, you know, value add, you know, value analysis committees and the contracting processes, with each new center in the U.S., you know, week in, week out. We're really focused, as you can imagine, on the largest accounts in the U.S., not, you know, who do the most here so far. I'm pretty excited about where we're going in the U.S. Maybe just to comment both on Europe, I think as Bernard said, we've been, again, opening up new centers in Europe, and I want to make a comment that, you know, tricuspid, especially in Europe, continues to see very strong growth.

[Daveen Chopra, Global Leader of TMTT at Edwards Lifesciences]

It's a newer therapy, smaller obviously in market size, but continue to see very strong growth where we're seeing that the market's growing and that people are really seeing that PASCAL actually in this situation, the tricuspid space, has really got these differentiated features for atrophic and tailored treatment, really, for tricuspid tier. overall, you know, we continue to be excited about where PASCAL is going in its launch.

[Scott Ullem, CFO at Edwards Lifesciences]

Thank you.

[Scott Ullem, CFO at Edwards Lifesciences]

Then about the financial implications of everything that Bernard and Daveen just talked about, which is we're feeling good about how TMTT is developing in 2023. You saw our original guidance for sales was $160 million - $200 million. We bumped up the bottom end of the range by $10 million last quarter, bumping out another $10 million this quarter, and it's an indication of how positive we feel about our progress this year.

[Operator]

Thank you. Our next question comes from Matthew Taylor with Jefferies. Please state your question.

[Matthew Taylor, Managing Director at Jefferies]

Hey, guys. Thanks for taking my question. I just wanted to ask one about the margins, basically. You had nice gross margins here in Q2. I know you're making a lot of ongoing investments, two things, I guess. What are kind of the key puts and takes to think about in terms of gross margins and OpEx spending through the second half of the year in terms of phasing or anything discrete to call out? Just conceptually, at a higher level, how should we think about operating margin progression over the course of the next couple years, especially as you might have some of your bigger clinical studies starting to wind down?

[Scott Ullem, CFO at Edwards Lifesciences]

Yeah, thanks for the questions. I'll start with gross margin. You know, on gross margin, we're seeing some benefit of mix in 2023, but it's more than offset by the impact of foreign exchange. That actually hit us last year in 2022, and it's flowing through our income statement in 2023. You asked about phasing. It's going to get more impactful negatively in Q3 and Q4, based upon current exchange rates. Now, if exchange rates change, you know, that may change a little bit as well. We're expecting gross margins to come down a little bit in Q3 and Q4 relative to the first half. All that said, we expect to end up right where we thought we would, in the range of gross margin guidance for 2023. Really nothing changed. In terms of operating expenses, you're right.

[Scott Ullem, CFO at Edwards Lifesciences]

We've been putting more investment into especially field-based personnel in Europe and U.S., and even outside, and that's weighing on operating expenses, but that's okay. It's part of a deliberate plan to really drive top-line growth by making sure that we've got the right people in the right places, supporting our clinician partners and making sure that patients are getting the right kind of care, especially as we're introducing these new products in places like TMTT and what Daveen talked about earlier. As it relates to operating margin progression over the next couple of years, we continue to see opportunities to expand our operating margin, and we're looking for ways that we can do that. We've identified areas where we can make changes and gradually incrementally expand our operating margin. Really, it's a secondary focus.

[Scott Ullem, CFO at Edwards Lifesciences]

The primary focus is investing for long-term top-line growth. Yes, some clinical trials wind down over the next couple of years, but we've got other ones spooling up. You know about what trials Larry's running in TAVR and Davin has going in TMTT, and this is a super important area of investment for us, again, to drive top-line sales by contributing to this really robust body of clinical evidence that we have supporting the growth in those two transcatheter businesses.

[Matthew Taylor, Managing Director at Jefferies]

Great. Thank you, Scott.

[Operator]

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Please state your question.

[Vijay Kumar, Senior Mnanging Diretor of Equity Research at Evercore ISI]

Hey, guys. Thanks for taking my question. Bernard, maybe my first one on this TAVR guidance here. I think, the underlying was raised at the high end to 13%. The first half TAVR underlying has been 10%-11%. I'm curious why the high end was raised. Was there something within the quarter that you saw some phasing, or is there something coming in the back half, which gives you the confidence perhaps 13% is even possible?

[Bernard Zovighian, CEO at Edwards Lifesciences]

Go ahead, you know, Scott.

[Scott Ullem, CFO at Edwards Lifesciences]

Yeah, Vijay, maybe I'll jump in here and give you a sense of how we see it. You know, the change in guidance, the expansion on the top end of the range, largely reflects better than expected performance in the second quarter and the first half results, compared to what we originally expected back at the time of the investor conference. Because we overachieved in the first half, we are introducing this higher top end of the range to accommodate a potential faster growth scenario, the way we saw earlier in the year. We're still modeling and planning around the midpoint of that 10%-13% range, That's the reason why we expanded the top end.

[Vijay Kumar, Senior Mnanging Diretor of Equity Research at Evercore ISI]

Understood. Maybe one sort of related question here. You know, first half, we've seen SAVR grow mid-teens. How much of that is volume versus price? Like, why are we still seeing SAVR outgrow TAVR? I think I heard Larry mention the macro environment staffing is improving, but I'm just, you know... It's odd for us to see SAVR outgrow TAVR. Is this a fundamental change in the market or perhaps new product introductions that's driving SAVR? Some color on SAVR versus TAVR would be helpful.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Yeah. Vijay, you know, let me start, and then I will ask, you know, Larry, you know, to add, you know, his comment here. Both, you know, our SAVR and TAVR business are growing, you know, nicely. The SAVR sales growth, you know, has exceeded TAVR because of a combination of things. You know, market growth, you know, SAVR market growth, but not only. Premium pricing of our innovative, you know, price premium, you know, technologies, and because of all of that, also our better, you know, competitive position. Again, in SAVR, what you have is a number of things happening, where in TAVR it is mainly, you know, procedural growth. You know, maybe, you know, Larry, you want to add anything here?

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Yeah, I think that's right. You know, we sort of have the three components that help contribute. You can't look at the growth rates and turn it all into procedures, because for the TAVR side, it is overwhelmingly majority procedures, but it's more of a combination of things on surgery. As we move through the COVID recovery, though, we probably saw hospitals prioritize their surgical programs, probably most, and I think that deals a little bit with patient acuity and just the need to get those patients treated probably a little bit sooner. I think cath lab recoveries maybe lagged a little bit beyond the surgical recovery. Again, we're very happy with where we saw TAVR procedure growth this last quarter.

[Operator]

Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Please state your question.

[Larry Biegelsen, Managing Director at Wells Fargo]

Good afternoon. Thanks for taking the question. Two, two on the pipeline and the TCT updates on this call. Let me start with the TRISCEND II comments. That's, you know, big news here. Arguably, you know, EVOQUE is your most important pipeline product. I guess my questions, Bernard, are, you know, just a couple here. One, has the trial stopped yet? You know, second, what would success look like to you, given the TRILUMINATE results showed only a quality of life benefit, but no positive trends on hard outcomes? Lastly, on TRISCEND II, if positive, I would think approval could come in mid-2024, not late 2024. I did have one follow-up.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Thank you, Larry. You know, I see that you are aggressive. That's good. You know, look, yes, indeed, you know, we completed the enrollment of a full cohort of TRISCEND II. I think we have been, you know, sharing that already in the past. We need to wait, you know, we need to wait, you know, one year, you know, follow-up, and then, you know, putting together all of the data, presenting that to the FDA. This is going to take some time, so which is why, you know, we still believe that around, you know, 2024, approval in the U.S. is reasonable. You know, are we going to go faster? You know, for sure, I think, you know, end of 2024 is reasonable.

[Bernard Zovighian, CEO at Edwards Lifesciences]

You know, I'm sure your question about, you know, how do we feel about, you know, study results, is in light of what we have seen with TRILUMINATE. It is tough to comment because, you know, TRILUMINATE was using, you know, one technology, TRISCEND II is using a different technology, different devices. We don't know, you know, very little about, you know, the tricuspid disease. It's very tough, you know, to comment on that. I have to say that, you know, quality of life is super important for patients. We will. Again, you know, we will have to see, you know, what, you know, the result of this study, and, you know, we are confident. Devin, you want to add anything here?

[Vijay Kumar, Senior Mnanging Diretor of Equity Research at Evercore ISI]

Yeah, I'll say two small points. Thanks for the question. Is that this interim analysis was a part of statistical plan, so it's already been planned out and was always a part to kind of show these results. We're excited to share these results with the clinical community. I'll make another comment that, you know, for us, I'm actually pretty excited by what we've seen actually previously with TRILUMINATE. Is it helps really confirm outcomes that have come from other studies with TEER technologies that we have on the PASCAL device, that, you know, that TEER in tricuspid delivers great tricuspid reduction with meaningful quality of life improvements, and we are excited to see randomized data.

[Vijay Kumar, Senior Mnanging Diretor of Equity Research at Evercore ISI]

To me, these are all great positive tailwinds in tricuspid, and, you know, we're excited to see what the TRISCEND II interim planned analysis will show.

[Josh Jennings, Managing Director and Senior Analyst at TD Cowen]

That's helpful. Just for my follow-up, the other one on the PARTNER 3, 5-year data, what do you think physicians will be focused on here? You know, there's been some concern, you know, among investors and clinicians, given the curves, you know, conversion, you know, between TAVR and SAVR between year 1 and 2, you know, in the 2-year data. You know, is there anything you can say, that could allay, you know, concerns? Thank you.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Well, I can't speak to the, to the data or what's gonna be presented. I think what people are gonna be looking at is what the trial was powered for and what it was designed to do. You know, we have a composite endpoint of death, all stroke, and rehospitalization, and those are the three components. I think first and foremost, you look at the primary, and then I think people are gonna look at the subcomponents of that and say, you know, what do they see happening, you know, in the trends in the trial? You know, I think that's what people are gonna be looking for.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

We're excited to, you know, the data's coming forward and the team's gonna, you know, continue pulling it in, and once it's all adjudicated, you know, the clinicians will obviously take the steering wheel, and they'll present the data. I think overall, every time we have one of these data reports, it just adds to our body of knowledge and adds to the body of evidence, and I think, you know, that's what we do for the clinical community. I, again, that's, I think, primarily, we focus on the primary endpoint, just like we did in the trial, and we'll see where we are.

[Operator]

Thank you. Our next question comes from Travis Steed with Bank of America. Please state your question.

[Travis Steed, Medical Device Analyst at Bank of America]

Hey, thanks for taking the question. I was wondering to follow up on U.S. TAVR growth. I wanted to understand a little bit better. I think you said price was stable, but it sounds like RESILIA's going faster than expected. I don't know if there's any way to kind of parse out the U.S., sounds like 10% TAVR growth in the U.S., you know, how much of that was actually price versus RESILIA in the quarter?

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Yeah, thanks for your question. Yeah, the price is a pretty small factor in the U.S. growth number. It's overwhelmingly driven by the procedure growth. You know, when you look at what we're going for with RESILIA for S3 UR, you know, we're still, you know, in the, you know, I wouldn't call it necessarily the early part, but we haven't even reached halfway in the launch of RESILIA yet. While we did go for a list price increase of $1,500, if you look at that as a % of the total device cost, you know, it's a lot smaller than what we did on the surgical side of things.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

It's certainly a contributor, and it's a long-term contributor for us, but it's pretty small in comparison to the procedure growth. Remember, too, as people's volumes go up, they continue to hit rebate tiers, and they get discounted accordingly. You know, you gotta factor all that in as well.

[Travis Steed, Medical Device Analyst at Bank of America]

Great. That's helpful. Then I did have a follow-up on the raised TAVR guide for the full year. Is there anything you're seeing in July? Just curious, like, what's giving you the confidence to raise the full year guide? When you think about Q3, should we think about this being down sequentially versus Q2 in dollars, like it has been historically?

[Scott Ullem, CFO at Edwards Lifesciences]

Scott, a couple things. You know, the increase in the guide was largely reflective of our stronger than expected first half performance and the prospect of potentially overachieving what we had modeled for the second half, although we're still modeling the midpoint of that range that we provided. As far as the July expectation, I guess we'll just leave it as the range that we put out for total company sales in the third quarter incorporates what we see so far month to date, but we're not gonna get into the month-to-month report. You know, in terms of what the later in the year trend may look like, a lot of it depends upon seasonality. You know, we get hit by the summer vacation season, and not just in Europe, but also in the U.S.

[Scott Ullem, CFO at Edwards Lifesciences]

We'll be able to talk more about that impact when we get to our third quarter call, both for looking back on the third quarter and what the run rate looks like going into Q4.

[Operator]

Your next question comes from Josh Jennings with Cowen. Please state your question.

[Josh Jennings, Managing Director and Senior Analyst at TD Cowen]

Questions. 2 TAVR questions. 1, first, just on the Japan recovery, can you just talk about, or share any insights into Japan?

[Operator]

Excuse me, Josh, you're cutting out. Could you pick up your handset?

[Josh Jennings, Managing Director and Senior Analyst at TD Cowen]

Oh, sure. Can you hear me now?

[Operator]

Yeah, much better. Thank you.

[Josh Jennings, Managing Director and Senior Analyst at TD Cowen]

Sorry about that. Just two TAVR questions. First, on Japan recovery trajectory, maybe just help us better understand any factors that are limiting the recovery in Japan and how you see that market shaping up in the back half of the year. Then the second question is just on the PROGRESS trial. Any updates on the enrollment pace? I believe first patient was enrolled in close to the end of 2021, so been about a year and a half of enrollment, and could that trial complete enrollment in 2023 or in 2024? Thanks for taking the questions.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Thank you, Josh. In Japan, what we have seen is a positive, like I said, sequential and also year-over-year growth in the quarter. It was below our expectation, we believe it is transient for a couple of reasons. One, the market, as you know, the market is still impacted from COVID and is still recovering from COVID. Also we believe it is transient because we are very pleased with the early feedback of the launch of SAPIEN 3 with RESILIA in Japan. We feel like we grew year-over-year sequentially below our expectation, but we feel we are confident that we are going to improve this in Japan.

[Bernard Zovighian, CEO at Edwards Lifesciences]

You know, maybe, you know, Larry, you want to add anything here?

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Yeah, I think that's right. I think, you know, Japan certainly got more impacted during COVID waves, I think even than some other regions in the last year, probably. As that stabilizes, we think that helps. As Bernard said, you know, we did see growth year-over-year and sequential. We just probably had higher expectations, and I think that's what's reflected in our comments. We're optimistic in the back half of the year that we're going to continue to see recovery in Japan, and that's all factored into our guidance. On PROGRESS, we don't have any updates on enrollment right now.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

I will say overall, you know, we've been pleased with how that trial's gone, but probably investor conference is when we'll probably provide a more fulsome update on that and probably some more projections. We'll have a lot more information under our belt then, that we can probably be a little more fulsome and probably a little bit more accurate about our projections.

[Operator]

Thank you. Our next question comes from Chris Pasquale with Nephron. Please state your question.

[Chris Pasquale, Partner and Senior Analyst at Nephron Research]

Thanks. Scott, the 3Q EPS guidance is a little bit lower than the street was modeling. It looks like operating margin's expected to contract by a couple hundred basis points versus where you were in the first half and then bounce back in 4Q. Is there anything in particular about the third quarter that drives that margin dip?

[Scott Ullem, CFO at Edwards Lifesciences]

Well, the only thing particular about Q3 is we pick up the summer seasonality, which hits us on the top line, and generally, the expenses continue to go through and are not as seasonal. That's really what it reflects.

[Chris Pasquale, Partner and Senior Analyst at Nephron Research]

Okay. I know Catherine's not on the call today, but just looking at the critical care guidance, that business has been running hot here, double-digit growth first half of the year. Looks like guidance assumes a pretty meaningful decel in the back half. Is that just tougher comps, or is there something in particular you're looking at there?

[Bernard Zovighian, CEO at Edwards Lifesciences]

No, exactly. You know, you got it. You know, we had a great, you know, Q2, you know, after a great, you know, Q1, you know, very balanced across, you know, all product lines. We didn't change, you know, the guidance, even though, you know, we changed it of the guidance in the last, you know, quarter. It is more about, you know, the tough, you know, year-over-year comparison in the second part of the year. Thanks for the question.

[Operator]

Thank you. Our next question comes from Matt Miksic with Barclays. Please state your question.

[Matt Miksic, Managing Director and Senior Equity Research Analyst at Barclays]

Thanks so much for taking the question. I wanted to follow up on this, you know, very strong performance in TAVR and good, but not as strong performance in TAVR and as it pertains to staffing. I know you talked about price a little and volumes, can you talk a little bit about, you know, given that, you know, TAVR, interventional TAVR resources that sort of grew up during the clinical trials of TAVR across the clinical community in U.S., Europe, kind of lost many of those folks who are maybe more proficient and are, you know, good news, replacing them with other folks. You know, bad news, maybe some of those folks are still coming up the curve.

[Matt Miksic, Managing Director and Senior Equity Research Analyst at Barclays]

If you could talk about, is that more of an issue on the TAVR side? Because TAVR surgical, you know, interventions are a bit more mature, you know, that's less of an issue on. We've heard that from some centers that are sort of, you know, we're more productive, more skilled, more mature on one side versus the other, which is kind of one of the factors. It'd be great to get some color, and I have one quick follow-up.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Okay, sure. Let me take a shot at that. Probably the biggest place we saw turnover on the TAVR side of things were our valve clinic coordinators. You know, I think we talked before about the number of valve clinic coordinators we train. I think part of that is just, it's just a really demanding job. There's a lot that goes into that in terms of screening and moving people through the system. I think there's a lot. We see a little bit more turnover than that than certainly.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

We don't really have the same level of work on the surgical side, because on the TAVR side, remember, patients have to get a CT, they have to have a lot more workup, and not every patient gets most surgical patients, in fact, don't get a CT. It's just easier to move surgical patients through the process because literally, if a patient comes in and they're deemed a candidate for surgery, they can move right to surgery within a matter of a few days or 1 week. Where for TAVR, they're going to have to be scheduled for a CT, you got to rule out coronary disease, and there's just other things that you have to do.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Is it there are pressure in staffing in the system that would have impacted, you know, across the whole system, but there's just more systems to impact on the TAVR side. We didn't lose our operators. Those aren't the people we lost. We didn't lose our operators. We still have a lot of residents and a lot of people coming up through the system, so it's not so much the implanting physicians as much as it is just general support staff.

[Matt Miksic, Managing Director and Senior Equity Research Analyst at Barclays]

Got it. That's helpful. Then just on, you know, like, it's a question about, you know, some of the investments you've made and maybe for Bernard, and rest of the team. The investments that we see coming through the clinical programs now, like EVOQUE and PASCAL, are investments and innovations that you made some time ago. I'm just wondering, you know, are you at a stage where, you know, you've got what you need to address these TMTT markets and sort of more advanced, you know, other, you know, valvular, you know, disorders?

[Matt Miksic, Managing Director and Senior Equity Research Analyst at Barclays]

Are you still out there hunting for sort of better mousetraps or additional technology and IP that we should expect to kind of, you know, further flesh out those programs going forward? Thanks.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Yeah. Thanks, Matt. You know, this is a very good question. Think about, you know, our vision in TMTT. Our vision is, you know, there are so many patient in needs, you know, mitral and tricuspid.

[Bernard Zovighian, CEO at Edwards Lifesciences]

... We believe that, you know, to be able to unlock, you know, this very large, you know, market opportunity, we need, you know, a, you know, a comprehensive portfolio. We are, you know, building this comprehensive portfolio. What you can expect is us, you know, investing in innovation, you know, next-gen innovation, so PASCAL Gen 2, Gen 3, Gen 4, you know, the same with EVOQUE, you know, the same with mitral replacement. This is on the technology side. We know from our experience in TAVR, it is, you need, you know, technology with evidence.

[Bernard Zovighian, CEO at Edwards Lifesciences]

In TAVR, you know, we are, I don't know how many, you know, clinic, randomized clinical study we did, you know, 3, 4, 5, or even more, you know, potentially in the space, you know, probably close to 10 between us and our competition. Here, we will have to think about the same way. We are. In my mind, we are not done at all in the TMTT, you know, clinical evidence, and we are not done in term of, you know, further innovating to be able to treat all of the patients, mitral and tricuspid patient. We, we like, you know, definitely our technology. We like our, you know, so far, you know, our clinical evidence that we are, you know, providing, and more to come.

[Operator]

Thank you. Our next question comes from Danielle Antalffy with UBS. Please state your question.

[Danielle Antalffy, Senior Analyst at UBS]

Hey, good afternoon, everyone. Thanks so much for taking the question. Bernard, or maybe Larry, just on TAVR, 2 questions there. Number 1, one of the things everyone's sort of trying to figure out as we move through Q2 is impacted backlog. I know the high acuity nature of the TAVR procedure are likely not much backlog, and I know you did benefit marginally in Q1. Just curious if you think you saw any of that work down in Q2? That's the 1st question. 2nd question is just, over the last few quarters, you gave some color on high volume versus low volume centers driving a lot of the growth. Just curious if you could give some color there, whether this was really broad-based across low and high volume centers. Thanks so much.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Yeah. Thanks, Danielle. Yeah, you know, we think, you know, as the front end of the funnel starts to fill back up again with referrals and that, I think there is a possibility that we are actually seeing a little bit of a backlog grow as we talk about the last mile still being probably the part that we see the most pressure on staffing. You know, I wouldn't be able to quantify that. It's probably just sort of more of a directional thing. You know, the fact that we've seen the growth in TAVR for the first couple quarters of this year, and we've been back into double digits, you know, it's not like our centers are out, you know, beating the bushes for patients. We're pretty pleased with our patient flow right now.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

I think that that's obviously really positive. I think, you know, in terms of large centers, small centers, we saw a dynamic throughout COVID, that when COVID would sort of, the wave would come through, that we'd sort of see the smaller centers growing faster, indicating people maybe stayed a little bit more local. When COVID tends to go away, people tend to go back to the centers, the large centers of excellence, and they're willing to travel a little bit more. I think we saw a little bit more growth in the large centers, in this past quarter than we saw in the small centers, but that's something that has varied a lot quarter by quarter. This last quarter would've been more in the large centers than the small ones.

[Operator]

Thank you. Our next question comes from Richard Newitter with Truist Securities. Please state your question.

[Richard Newitter, Managing Director and Senior Equity Research Analyst at Truist Securities]

Thanks for taking the questions. Two here. The first one, just on reconciling the raise to the high end of the TAVR range and your Japan commentary relative to expectations. Do you need Japan and the dynamic there to improve in the second half to hit the midpoint of your guidance, or is that kind of what's embedded to get to the upper end? I'm just trying to reconcile those two pieces.

[Scott Ullem, CFO at Edwards Lifesciences]

Yeah. We're expecting Japan to perform better in Q3 and Q4, and that's a contributor to our assumption about the midpoint of the range. If Japan does better than we're expecting, that could get us into the higher end of the range, and if it does worse, then lower end of the range. All of that said, Japan is still a pretty small percentage of our overall sales in TAVR, but it's an important one, and it's an important growth driver for us longer term.

[Richard Newitter, Managing Director and Senior Equity Research Analyst at Truist Securities]

Okay. Just secondly. Thanks for that. Secondly, just as we think about, you know, especially in the U.S. TAVR, if you're at about 10% now, you've got RESILIA pricing contributing some amount. I guess, you know, if you're 10% with RESILIA, as we, as we just think out, whether it's 2024 or just on a normalized basis, should we be thinking of your view that the TAVR market has approached, you know, a high single-digit volume growth sustainably as we, as we think back to normalized levels? Is that the right way to think about it?

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

I'll try to answer that, and Bernard can, or Scott can certainly jump in as well. No, we don't think we're seeing an overall slowing of growth in the TAVR space. We think we actually have, you know, a pretty long runway here. We think there's still a lot of untreated patients in the system, and we continue to try to get through that. You know, as I said earlier, I still feel like we're somewhat constrained within the system for staffing, and we still put double-digit growth on the board the first 2 quarters. I feel like there's still, you know, a long-term opportunity, and we haven't even begun to talk about the long-term impact of things like early TAVR and things like PROGRESS trial, you know, that obviously go out much further.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

I think to try to think that this is gonna go the way of population growth anytime soon, that's just not how we see it.

[Scott Ullem, CFO at Edwards Lifesciences]

Yeah, I'd just add to that, Larry, just to reinforce that. Our confidence in a $10 billion total addressable market hasn't changed one bit in 2028. While COVID interrupted our trajectory to that larger TAM, we still feel a lot of confidence that we've got big growth ahead of us, not just in-

[Scott Ullem, CFO at Edwards Lifesciences]

... with current indications in our current product portfolio, but added to that are new technologies and broader indications in the U.S., Europe, and beyond.

[Operator]

Thank you. Our next question comes from Pito Chickering with Deutsche Bank. Please state your question.

[Pito Chickering, Director and Senior Equity Research Analyst at Deutsche Bank]

Hey, good afternoon. Two quick questions here. For the U.S. markets, is there any geographical spread for those large centers that are growing in markets that were still coming out of COVID versus the ones in the south that were faster coming out of COVID? Or is it broad-based geographically?

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Yeah, you know, when we were in the middle of COVID, we saw a lot of variation in the country based on where COVID was at any given point. Because there was a lot of variation in healthcare policy for various different states in terms of how they reacted. We saw a lot of different variation. I would say most of those restrictions have sort of dissipated now, and we're not seeing anywhere near that high variability from state to state or region to region that we used to see, and that's certainly true in the U.S.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

In Europe, we do see a little bit of regional impact, a little bit more, where one region is growing faster than another region, but it's not anywhere near the extremes that we saw during COVID, where we saw huge swings now. They're much more muted now. I would say if I look back through history, we've always seen a little variation in Europe from country to country, so it feels like it's maybe not normal, but it's getting pretty close to normal, I guess I'd say.

[Pito Chickering, Director and Senior Equity Research Analyst at Deutsche Bank]

Okay, fair enough. Like, with a competitor talking about lower U.S. growth in mitral and the need to restart the referral network, can you talk about what you think the overall mitral market grew in the market? How your market share is looking, and any changes to your long-term market growth of that market?

[Bernard Zovighian, CEO at Edwards Lifesciences]

Let me start here, and then, Daveen Chopra, you can add your some comments. You know, what we have seen is a nice recovery, you know, in Q1 and in Q2, in the mitral, you know, market in the U.S. and even in Europe. I'm sure you know, Daveen Chopra, you have more, you know, precise commentary here to add.

[Daveen Chopra, Global Leader of TMTT at Edwards Lifesciences]

Yeah, sure. No, definitely. I think I'll follow up if I say, you know, the overall TMTT market with both tricuspid and mitral continues to grow very well on a global basis, right? You know, in that, close to that maybe 20% kinda mark, you know, globally. In the U.S., though, specifically where we're just in mitral, we do see, you know, strong growth. I think, Bernard, you were saying something like, almost like double-digit growth, which is about the ballpark we're kind of seeing for U.S. mitral. We think it's there, but not as strong as it is on a global nature. If you remember, in many countries of the world, these technologies are just coming for the first time in there. We're still launching this technology into many, many countries. We're in very few countries.

[Daveen Chopra, Global Leader of TMTT at Edwards Lifesciences]

There are countries in Europe, countries outside of Europe that we haven't even launched into yet. We continue to see as we launch in new countries, that'll help the market grow, as well as the continued adoption of mitral in the U.S.

[Operator]

Thank you. Our next question comes from Adam Maeder with Piper Sandler. Please state your question.

[Adam Maeder, Managing Director and Senior Research Analyst at Piper Sandler]

Hi, good afternoon, guys. Thank you for squeezing me in here. Two TAVR-related questions, I'll ask them both upfront. First, on the ALLIANCE study, it sounds like that's gonna restart enrollment this quarter. Can you just talk about the effects or improvements to get safety and X4 back in the clinic and remind us where we are in terms of enrollment with that study? The second question is just a clarification on S3 Ultra RESILIA. I know you're launching that obviously here in the States. I think that's approved in Japan and launching. What is the status that of that technology in Europe? Thanks for taking the questions.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

Sure, thanks. Well, in terms of the changes we made to X4, they were all delivery system related, so there weren't any changes made to the valve or anything along those lines, which is why we were able to make the changes pretty quickly and get back in the clinic. We're really pleased where we are, and we're all approved to begin enrollment. Now, all of the centers have to go back in and, you know, go back through their IRBs and whatnot, but we have a number of centers that are already green-light and ready to go. We expect to begin enrollment again very, very shortly. You know, I'm not ready to give an update on enrollment much probably like PROGRESS.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

We'll probably do that at the investor conference once we have a little bit more of a run, because it's not really about where we are, it's projecting where we think we're gonna finish. I'd rather give you a more fulsome answer on that, a little bit later. S3 UR, you know, we're working with European regulators on that, but remember, there's been a huge change in the regulations in Europe to the MDR process. There's also just a huge bottleneck in terms of the number of devices that are working their way through the system there. We don't have any timing on that. Frankly, all the notified bodies are sort of learning about how the new regulations play and as are all the sponsors.

[Larry Wood, Group President, TAVR and Surgical Structural Heart at Edwards Lifesciences]

We don't have any timing on that yet, but we do have it approved in Japan, and that launch is well underway. We do have it approved in the U.S., and that's underway. In both of those markets, we expect that to be the majority platform as we exit the year.

[Operator]

Thank you. Ladies and gentlemen, we have now reached the end of the question and answer session. I will now turn the call over to Bernard Zovighian for closing remarks.

[Bernard Zovighian, CEO at Edwards Lifesciences]

Thanks, Diego. Let me close this meeting by saying I am excited about our performance so far in 2023 and confident in our outlook for the rest of the year. In addition, beyond the numbers, I am pleased with our progress on pipeline development, clinical trial, and confident in our long-term strategy to help even more patients. Thank you for your continued interest in Edwards, Mark, Oliver, Scott, and I welcome any additional questions by phone.

[Operator]

Thank you. That concludes today's conference. All parties may disconnect. Have a good evening.

Participants

Executives

• Bernard Zovighian, CEO
• Daveen Chopra, Global Leader of TMTT
• Larry Wood, Group President, TAVR and Surgical Structural Heart
• Mark Wilterding, Senior Vice President, Investor Relations and Treasurer
• Scott Ullem, CFO

Analysts

• Adam Maeder, Managing Director and Senior Research Analyst at Piper Sandler
• Chris Pasquale, Partner and Senior Analyst at Nephron Research
• Danielle Antalffy, Senior Analyst at UBS
• Josh Jennings, Managing Director and Senior Analyst at TD Cowen
• Larry Biegelsen, Managing Director at Wells Fargo
• Matt Miksic, Managing Director and Senior Equity Research Analyst at Barclays
• Matthew Taylor, Managing Director at Jefferies
• Pito Chickering, Director and Senior Equity Research Analyst at Deutsche Bank
• Richard Newitter, Managing Director and Senior Equity Research Analyst at Truist Securities
• Robbie Marcus, Managing Director at J.P. Morgan
• Travis Steed, Medical Device Analyst at Bank of America
• Vijay Kumar, Senior Mnanging Diretor of Equity Research at Evercore ISI